Closely-Watched Debt Collection Process Serving Case Gets Class Action Status

A case that could prove to be a bellwether for the legal debt collection industry was certified last week as a class action.

A federal judge in Manhattan last Wednesday certified a class of potentially thousands of New Yorkers that allege a debt buyer and a collection law firm used “sewer service” to deny consumers their day in court to defend collection lawsuits.

The case, Monique Sykes et al., vs. Mel Harris & Associates, LLC et al., alleges that collection law firm Mel Harris, acting on behalf of debt buyer Leucadia National Corp., employed a process server that allegedly deliberately did not properly serve collection lawsuit defendants with notices they were being sued. As a result, the suit alleges that when the debtors didn’t appear in court, Leucadia and Mel Harris obtained default judgments against them, which allowed them to freeze debtors’ bank accounts and threaten to garnish wages or property to obtain settlements.

The case is being very closely watched by the ARM legal community as well as consumer advocates. In January 2011, insideARM.com explained the ramifications in an in-depth article.

Not only does the suit claim violations of the Fair Debt Collection Practices Act (FDCPA), but because of the collusion between the companies alleged in the case, there are potential Racketeer Influenced and Corrupt Organizations Act (RICO) penalties.

The case was thrust into public view when, in late December 2010, U.S. Circuit Judge Denny Chin ruled that some RICO claims would be allowed to stand. Chin also certified the class last week.

The complaint notes that Leucadia, a publicly traded holding company with interests in financial services, filed more than 100,000 consumer debt collection lawsuits between 2006 and 2009 in New York City civil court and that Mel Harris represented the company 99 percent of the time. It also notes that Todd Fabacher, Mel Harris’ designated custodian of record, signed the vast majority of the approximate 40,000 affidavits of merit the firm filed each year.

In certifying the class, Chin opened up the case to any consumer sued by the defendants in New York City civil courts.

An attorney representing the defendants told legal publication The JD Journal that Chin last week merely decided to certify the class. “It’s important to note that this decision in no way addresses the merits of the case, and has no bearing on liability, but simply allows the case to move forward as a class,” he is quoted as saying.